The results are in, and the mystery bonus from our company’s recent buyout is indeed generous. Like, me-laughing-in-my-car-alone-about-how-nuts-it-is generous.
Our previous employer is paying the bonus as a loyalty gift. It is prorated based on years of service, with one month of pay awarded per year spent at the company. The bonus caps out at six months. I had been there a year (to the day!) when the buyout closed, so I will receive an extra month’s pay. Mr. Steward, however, has been at our company seven years. He maxes out the bonus.
While we have been given the total numbers, we still don’t know the exact amount thanks to not being sure what the “other required deductions” are on top of the 25% bonus tax rate. It’s safe to conservatively say that we should net at least $18,000 once the dust settles, though.
For some people, $18,000 is no big deal. For us, that forms an immediate 15% increase in our net worth. That is “significantly alters our financial situation” money. So what are we going to do with it?
Keep Plugging Away at the Same Goals
If we didn’t already have a well-established plan, we’d probably follow the traditional advice on how to handle a windfall. That advice says to sit on the money for 3-6 months while considering all the options. Since our 2017 goals are well-established (we’ve lived with them for a year now, after all!) we feel comfortable moving forward completing those goals.
As a recap, this was the year we intended to remove the $50 per month PMI payment from our house, which we were aggressively working on until an opportunity presented itself to replace Mr. Steward’s somewhat unsafe vehicle. We swapped the goals in July, using the remaining money that would have gone toward the house to buy the van and rapidly repay the loan. We have not regretted the choice, and hope we have set ourselves up to not have to worry about vehicles for several years.
We are especially glad now that the windfall is looming. With the amount we will be given, we can pay off the van and reach the 78% loan-to-value threshold we need to remove the $50 monthly PMI portion of our mortgage payment, completing both goals in 2017.
Aren’t There Better Moves We Could Make?
In the scheme of things, our choices are not the most mathematically optimal. At 3.75% on both the house and vehicle loans, we are paying little interest relative to the average growth of the stock market. We are paying even less on the house when you consider the mortgage interest tax deduction. Nonetheless, we’re sticking with our goals, for two reasons:
First, we dislike debt. Obviously we are willing to use it as a tool, since we took out a loan to buy the van when the opportunity presented itself. But, on principle, we like to drop debt (especially non-mortgage debt) as quickly as possible.
Regardless of whether or not investing in the stock market could earn more, the PMI actively annoys us. Paying for the “privilege” of borrowing money on top of the interest already being paid, particularly when the PMI is not tax-deductible, just feels absurd. We’d pay PMI for the first ten years of our thirty-year mortgage if we stuck to our original loan plan. That makes for $6,000 in PMI alone. If we pay down to the 78% loan-to-value threshold, we’ll have paid about 9 years of our home loan in a little over 2 years. We definitely want to own our home before 2045, so that’s not too shabby.
The second, more important reason we want the auto loan and PMI gone is to have greater monthly cash flow. Completing both goals frees up $250 in our monthly budget. The rapidly impending birth of baby Squidge means that we’ll have double the daycare costs for a couple of years. That, paired with our 2018 goals (a separate post, but, spoiler, they’re basically “invest in all the tax-advantaged things!”) makes for the possibility of being cash-flow poor even as we set ourselves and our children up nicely for the future. We don’t want to invest heavily into our retirement funds but be unable to do basic home repairs or handle a weird spending month without dipping into our emergency fund.
We’ll Wait Until It’s Ours
A surprising number of new cars have already appeared in our work parking lot, considering we do not yet have the cash in hand. The bonus is contingent on employment when the bonuses are paid out in a few weeks, so a small element of risk remains. I worry for the folks who purchased these new vehicles if their employment situation changes.
As silly as these preemptive purchases seem to me, I must confess to my own temptation. We are having ongoing kerfuffles between our bank, who holds our auto loan, and the BMV. Each says the other is responsible for getting the lien placed on the title, and we are constantly running and calling in between. At yet another bank visit last week, it was very tempting to say, “Look, we’re paying this off next month anyway, just transfer the cash over from our savings account and let’s have this done now.”
Frankly, doing so probably would have been fine. Odds are that we’d pay ourselves back in three weeks and I’d save myself the headache of continued wrangling with the two offices. The stakes are too high in the slim chance that it does go wrong, though. Reducing our emergency fund by a third with a baby on the way while the company that employs our entire household goes through a major transition is simply an unnecessary risk. So, I impatiently tap my foot waiting for the checks to post. Sometimes at the BMV.
Have you ever received a financial windfall? How did you handle it? How did you feel after using it?